Papua New Guinea (PNG) has faced a foreign exchange (forex) shortage since 2015. To protectreserves, the Bank of PNG has resorted to forex rationing that led to a large backlog of orders andimport compression. This paper surveys the structure of PNG’s forex market and analyzes recentmarket conditions. We argue that the various policy proposals being discussed currently in PNG areinadequate to restore currency convertibility. For this, a real exchange rate depreciation is requiredinstead. We develop a forex market model that features a backlog of unmet orders, which suggests thata frontloaded depreciation is preferred to an often-favored gradual adjustment. Empirical resultsindicate that the government’s large budget deficits have contributed to the forex shortage, whichhighlight the need for greater fiscal restraint. In the longer term, we argue for more exchange rateflexibility and forex allocation through competitive auction.